Wednesday, December 28, 2011

No class treatment for "cure" claims

Doe v. Passages Malibu, 2011 WL 6739610 (Cal.App. 2 Dist.)

Doe was a former client of defendant Grasshopper House d/b/a
Passages Malibu, an alcohol and drug treatment center. He sued after his admission was terminated
early as a result of his allegedly violent threats against the owner of the
facility. He paid $200,000, and argued that he was wrongfully denied a refund
of over $100,000 for the unused period of his stay. He also contended that
defendants' use of the word “cure” in advertising was unlawful and misleading.

He wanted to sue on behalf of a class consisting of all
clients who had paid for “the addiction cure services” during the class period,
and a subclass who’d been involuntarily terminated without a refund. Doe argued that the CLRA and UCL claims could
be dealt with classwide because they relied on the same misrepresentations of
addiction cure services, and that the core of the case was that Passages wasn’t
licensed to provide medical treatment and falsely represented that it could
offer a medical cure. Given the
undeniable materiality of a promised cure to a class of people suffering from
addiction, he contended, the claims were amenable to class treatment. He cited case law that causation on a
classwide basis could be shown by materiality, and that a material
misrepresentation would give rise to an inference of reliance for the class.

Defendants argued that class treatment was
inappropriate. Each client signed a
contract on admission acknowledging that no guarantee of recovery had been
made, thus making issues of materiality or reliance vary from consumer to
consumer. Further, defendants argued,
each class member’s right to medical privacy would render management difficult
or even impossible. Plus, the large
admission fee would give each member sufficient incentive to litigate on her
own.

The trial court denied certification, and the court of
appeals affirmed. Substantial evidence
supported the trial court’s determination that common questions of law or fact
didn’t predominate. In order to
establish commonality in false advertising, a plaintiff must show at a minimum
that each class member was exposed to the ads.
But the class definition included people who never saw any of Passages’s
ads, as well as people who were cured. Tobacco II was not to the contrary; it
involved standing, not commonality. Even
assuming that the class comprised only those exposed to the ads at issue, Doe
would have to show reliance, and the trial court found that reliance and
causation couldn’t be established classwide, a finding that was supported by
the evidence.

If materiality or reliance would vary from consumer to
consumer, the issue is not subject to common proof, and the action is properly
not certified as a class action. That was the situation here because, “among
other reasons, there was no evidence of a common misrepresentation that had
caused injury to the entire class, and there was a potential conflict between
those class members who had read and attempted to negotiate the allegedly
unconscionable contract and those, like plaintiff, who had not read or
negotiated the contract.” But isn’t a
promised cure inherently material to these vulnerable consumers, and thus presumed
to cause classwide reliance? Passages
argued that the contract dispersed any such inference, and Doe didn’t address
the contract until his reply brief. The
court of appeals held that the enforceability of the contract provision might
vary from client to client; Doe’s declaration said that he didn’t read or
understand the contract and was mentally and physically impaired when he signed
it. That supported a finding that his
claim was not typical and that potential class members differed.

Moreover, the court of appeals affirmed denial of
certification of the UCL claim on superiority grounds, even though the UCL
claim didn’t require reliance or proof of exposure to deceptive advertising. The proposed class included those who were
actually cured, which mattered to the question of restitution, which is
measured by the difference between what the plaintiff paid and the value of
what she received. For cured class members,
that difference was zero. For those who
relapsed, calculating restitution wouldn’t be a simple matter of calculating the
cost per day to attend Passages. Thus,
the trial court reasonably denied certification of the proposed class on the
ground that, in order to fashion a restitution award, “it would be necessary to
litigate the degree of each class member's recovery (or lack thereof) from
addiction.”

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